02381cam a22002657 4500001000600000003000500006005001700011008004100028100002100069245014100090260006600231490004100297500001400338520123000352530006101582538007201643538003601715690008201751690007801833700001301911710004201924830007601966856003702042856003602079w7110NBER20161209205111.0161209s1999 mau||||fs|||| 000 0 eng d1 aGordon, Roger H.10aGovernment as a Discriminating Monopolist in the Financial Marketh[electronic resource]:bThe Case of China /cRoger H. Gordon, Wei Li. aCambridge, Mass.bNational Bureau of Economic Researchc1999.1 aNBER working paper seriesvno. w7110 aMay 1999.3 aTo date, China has maintained a variety of restrictions on its financial markets. In addition to imposing capital controls and regulating interest rates, the government controls both the set of firms that can sell equity on the domestic or foreign stock markets, and the amount they can sell. China is unique in that foreigners pay much less than domestic investors for intrinsically identical shares. In this paper, we show that these characteristics of the Chinese financial market are consistent with a government choosing regulations to maximize a standard type of social welfare function. The observed policy of charging much higher prices for equity sold to domestic than to foreign investors can simply reflect the more inelastic demand for equity by domestic investors. Under certain conditions, these regulations are equivalent to income taxes on business and interest income. The pattern of tax rates is not qualitatively different from those commonly observed elsewhere, particularly in other countries with capital controls. Given the ease with which firms and individuals can evade income taxes, however, indirect taxation through restrictions on the financial market may serve as an effective alternative. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG28 - Government Policy and Regulation2Journal of Economic Literature class. 7aH25 - Business Taxes and Subsidies2Journal of Economic Literature class.1 aLi, Wei.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w7110.4 uhttp://www.nber.org/papers/w711041uhttp://dx.doi.org/10.3386/w7110